PREPARING SUPPLY CHAINS FOR A NEW RETAIL LANDSCAPE POST CORONAVIRUS (COVID-19) - NEW Whitepaper
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NEW Whitepaper
PREPARING SUPPLY
CHAINS FOR A NEW
RETAIL LANDSCAPE POST
CORONAVIRUS (COVID-19)
TS
H INSIGH GY
WIT STRATE A
S
FROMTOR LOUI
C
DIRE SEGOOD
HO
A Whitepaper by Bis Henderson Consulting1
The Coronavirus has radically and FINDING THE NEW NORMAL
abruptly changed the way we work and
live our lives. How will this alter As physics students know, ‘perturb’ any system
consumer behaviour and attitudes? And and it will at first oscillate wildly, even
what will this mean for retail and the chaotically. Over time the oscillations will decay
supply chains that support it? towards a steady state, which may not be the
same as the original state. It may take months,
By Louisa Hosegood, Digital and even years, for the shape of the new retail
economy to become clear, and firms that reap
Strategy Director, Bis Henderson
early profits from an initial return to ‘normality’
Consulting.
may not necessarily be best positioned for
success in the longer term. They will discover
There will still be consumers, retailers and
that true resilience isn’t about bouncing back to
supply chains after Coronavirus (AC). But that
business as before; it is about bouncing forward
is not to say that it will be ‘business as usual’,
to grasp new opportunities in new conditions.
and indeed there are many who would say that
could be a good thing – a chance to reset, and
Governments have of necessity taken control,
correct some of the less attractive features of
and to some extent ownership, of large parts of
the recent, globalised, high consumption retail
their economies – they may prove reluctant to
economy. Those hopes may not be fulfilled, but
loosen their grasp. The liberal laissez faire free
nonetheless much will have changed, in global
market philosophy may to some extent be
and national economies, and in the desires and
replaced by state support for domestic
behaviours of individual consumers. While the
manufacture in key sectors; the reintroduction
directions of change are open for speculation,
of tariff and non-tariff barriers, and domestic
change itself is certain, and retailers need to
preference in public procurement. For retailers
look beyond the current hiatus to consider how
there may be new market distortions: for
their supply chains can achieve the necessary
example, effective subsidy for physical High
resilience, flexibility and agility to deliver on
Streets, and new pressures and burdens on
consumer needs in the brave new world that
online retail, creating disincentives towards
emerges.
adopting new technologies, techniques and
business models. On the other hand,
We may not have a crystal ball, but there are
government may learn some useful things: for
some trends and features that are near
example, the current loosening of Competition
certainties. Interestingly, many of these are not
law to allow food retailers to share physical
solely the result of the current crisis – in many
assets, workforces and demand data may
cases they are amplifications and accelerations
suggest that there are ways of encouraging
of trends that were already on the horizon.
supply chain collaboration that are economically
beneficial, serve the Green agenda, and do not
constitute a conspiracy to disadvantage the
consumer.
"While the directions of change A further macro-economic uncertainty post-
are open for speculation, change crisis is the effect on international transport. It is
conceivable, for example, that travel and
itself is certain, and retailers need tourism may remain at depressed levels for an
to look beyond the current hiatus" extended period. This could seriously limit the
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opportunities to spend, may come out of the
"True resilience isn’t about
crisis relatively cash-rich. The availability of
bouncing back to business as consumer credit AC is another unknown; the
before; it is about bouncing government could choose to push credit
towards industry rather than consumers.
forward to grasp new
opportunities in new conditions." It may well be that if the government is seen to
have failed workers in the ‘gig’ economy –
which includes many casual and part time
workers in retail supply chains, from fruit pickers
availability of premium ‘belly freight’ air to warehouse staff and delivery drivers – new
transport, reducing the attractiveness of long- regulations may be introduced that will impact
distance supply chains. Meanwhile, until the on retailers’ costs and flexibility.
new world economy settles down, exchange
rates and commodity prices could be volatile, All these factors, individually and in
creating extra challenges for sourcing policies. combination, are likely to fluctuate in a fairly
random fashion for quite a while before settling
down to a new normal.
TAX OR SPEND?
Governments will look to revitalise the economy CONSCIOUS CONSUMERS
by boosting retail demand. However, that is not
straightforward. Vastly increased state Above are some of the macro-economic factors
borrowings will have to be financed through that could challenge retailers. But retail is, of
increased taxation and consumer booms tend course, the expression of a myriad of individual
to be inflationary. On the other hand, we may consumer decisions. What we were noticing,
find that consumer demand remains depressed. even before the current emergency, was the
A typical and often long-lived response to a development of a set of behaviours, concerns
crisis of the current nature is for consumers to and wants that have been characterised as ‘the
become much more cautious in their conscious consumer’.
expenditure.
We expect these trends not only to continue,
Demand may be suppressed by changing but also to be amplified by the crisis, as
consumer attitudes to ‘buying stuff’, which were individual consumers are forced to reconsider
already evident and are discussed below. An their values. Importantly these concerns do not
unknown, but potentially large, number of
consumers may be at least temporarily
unemployed, with little disposable income. It
may be that many of the ‘just about managing’
will have to make significant reductions in "A typical and often long-lived
expenditure: they may have spent months on
just 80% of basic pay, and have lost
response to a crisis of the current
opportunities for overtime, or subsidiary nature is for consumers to
incomes in the gig economy. Another, though
become much more cautious in
doubtless smaller group will have retained their
full-time income and, having been denied their expenditure."
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seem to be the reserve of the cash-rich, the "Retail may become less ‘fashion-
middle classes or the young, they represent
genuine movements across most or all driven’, with implications for
demographics. Consumers’ experiences in the sourcing, ordering, stockholding
current crisis, and the conclusions they draw,
may reinforce these behavioural shifts.
and merchandising strategies."
These trends will affect what people buy, where
their purchases come from, the quantities they
buy, and how they shop. Retail supply and carry a far more detailed tech spec, but it may
fulfilment operations will have to adapt to meet take a real live shop assistant to explain which
these new consumer requirements. And while aspects of it actually matter.
some of the issues may seem a little ‘niche’, it is
worth bearing in mind that retailing works on Another trend, much talked about but which
margins – quite small percentage changes in a may be made a reality by the current crisis, is a
market can have major implications for viability. reaction against buying ‘disposable’ fashion and
Online, after all, only accounts for around a fifth other items intended for a short or even single-
of retail trade – yet companies and whole use life. Although this is partly bound in with
sectors have been challenged, even broken, by environmental, resource, and social concerns,
much smaller moves to online. there are also demographic factors: the decline
in home ownership, and rise in singleton
The list of issues, beyond price, quality and households – the divorced, the elderly – are not
availability that are increasingly influencing just impacting the market for white and brown
consumer choices is long and familiar, such as: goods and home furnishings, but are making
climate change (particularly with regards the the ownership of large amounts of ‘stuff’
carbon impact of transport), plastic packaging generally less attractive. Retail may become
waste and pollution. Consumers are also less ‘fashion-driven’, with implications for
paying more attention to ethical concerns like sourcing, ordering, stockholding and
modern slavery, human rights abuses and merchandising strategies.
animal welfare.
Allied with this, we may see demand grow for
In all these instances, the conscious consumer goods to be repairable rather than replaceable.
will expect the retailer to be open, honest and There may also be developments in the leasing
knowledgeable – to accept ownership of and or rental of consumer durables, as an
responsibility for the entire supply chain. The alternative to outright purchase. If they come to
growing power of social media to come down pass, these developments could radically alter
hard on perceived lapses should not be the role of retailing in some sectors, and the
underestimated. Nor of course should the shape and function of their supply and fulfilment
possibility of using social media to reinforce chains. It may be that, for such retailers, the
positive messages about responsible supply competitive edge, from a logistics point of view,
chains. will be found not so much in the initial fulfilment
of a consumer purchase, but in the reverse leg
The demand for information is part of a wider of the supply chain – the ability to pull back not
trend that expects retailing to be a service, not just returns, as at present, but leased/rented
just a transaction, which suggests opportunities goods, used goods in part exchange, and so
for physical retailers. A website can readily on, and to refurbish, repurpose, resell or recycle
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as appropriate. shopping, but also homeworking. If, for many
companies and workers, that is successful it
may become a permanent feature, with possibly
CHANGING THE RETAIL profound effects on where, when and how
EXPERIENCE people shop. Homeworkers can be much more
flexible over online delivery slots. On the other
Finally, there is the question of how and where hand, homeworkers might find popping to the
consumers will do their shopping. As noted, local shops an attractive way of taking a screen
online already accounts for 21% of retail spend. break and dividing up the working day. This
In current conditions, many consumers will be may mean fewer workers shopping or browsing
using online for the first time and many more in town centre shops in their lunch breaks,
will have come to depend on online ordering putting further pressure on traditional High
and home delivery for most or all of their Street retail.
purchases. Provided experiences are generally
positive, and the fulfilment network settles into
an efficient and reliable state, many of these
consumers may change their mode of shopping
permanently. "Online already accounts for 21%
of retail spend. In current
Visits to physical shops are strictly curtailed in
the current crisis, and consumers are urged to conditions, many consumers will
minimise their grocery shopping trips. That will
be using online for the first time
tend to boost the ‘big weekly shop’ model,
which until the crisis was tending to decline in and many more will have come to
favour of a more ‘little and often’ and depend on online ordering and
convenience store based approach. Which
effect will prevail AC is unknown. It may be, that home delivery for most or all of
the crisis promotes a resurgence of the ‘corner their purchases."
shop’. An interesting finding in current
consumer research is a desire for retail and
shopping to be in some sense ‘community
building’ – which may mean local service, local
employment, local sourcing, use of local FLEXIBLE, AGILE, RESPONSIVE
contractors and so on. It’s easy to see how this SUPPLY CHAINS
may stand in stark contrast to the present high
food-mile model. It may be that as High Streets Clearly, the future shape of retail is uncertain –
pivot towards a more leisure-based economy, perhaps the only certainty is that change is
the remaining town centre retailers look to vary inevitable. The retailers that survive and
their hours, perhaps towards a Continental prosper will be those with supply, fulfilment and
model of not opening until late morning but return networks that are flexible, agile and
remaining open into the mid-evening. If retailers responsive – capable of adapting quickly to
and towns wish to promote this model, local changing consumer lifestyles, thinking and
rules on parking, deliveries and the like may demands. But critically, those highly responsive
have to be reconsidered. supply chains must be created with the
sustainability of the business, and its future
Technology is not just facilitating online profitability, firmly in mind.
www.bis-hendersonconsulting.com5
In order to embrace the change, retail supply Firms also need to rethink their physical
chains will need to adapt and move forward into estate. Certainly in terms of type and location
the new norm. – High Street, convenience store, retail park –
but more fundamentally, how the estate is used.
But what has this situation taught us about our This is not a new question; the debate over the
supply chains? future of the high street and shops has been
rolling for a while. The current situation is
The topics on the agenda will be many and merely forcing retailers to accelerate their
varied. Some will be direct reactions to how the deliberations and make some changes. This is
current supply chain has been impacted. Some not to suggest there should be no stores at all,
changes may already be part of a company’s but rather how does the physical retail world
strategic thinking or were planned in, but the meet the digital, how do the advantages of a
current situation may have amplified the need customer’s physical experience in touching a
for change, accelerated the timing or re-defined product and receiving advice from a sales
its scope. The key will be agile planning and assistant measure up to the convenience of
prioritisation, balancing cost and risk - online delivery? For example, should all or
particularly as we enter an uncertain period perhaps just parts of oversized or redundant
where many businesses will be purely focused stores be repurposed as dark stores for online
on short-term recovery and survival. fulfilment, or as city centre hubs for
Importantly, not everything comes with a big consolidating deliveries within low-emission
price tag, but creative thinking, fleetness of foot zones? How do stores fit into strategies for local
and, to some degree, a leap of faith, will be delivery, click and collect and returns? Should
required. town centre stores be pure showrooms and
sales/advice centres, with fulfilment from
So, what should companies and elsewhere? How do stores play a role in the
supply chains be thinking about? new ‘community’ movement? And ‘pure’ online
players may consider, as some already are,
Firstly, online. Businesses that have been whether business would benefit from a physical
forced into taking their first online steps, and showroom presence, whether their own or
those that have seen online sales as a marginal through partnerships.
‘nice to have’ need to start taking eCommerce
seriously. This doesn’t just mean making the Online or physical retail businesses need to
website fit for purpose. It means ramping up the give serious consideration to the returns loop.
capability to take and to fulfil orders. It means This is not just about the efficient passage of
creating the ability to differentiate customer customer returns back in to saleable stock, but
propositions, while offering an omni-channel potentially it could be about the recovery,
experience that is consistent right across the reprocessing, recycling of used and end-of-life
brand. And for those seasoned multi-channel goods and of packaging materials.
retailers and grocers that are seeing higher
volumes, and therefore require reactionary Alongside the recovery mode of dealing with
capacity increases – the challenge will be in huge swathes of unsold or unseasonal stock,
estimating the level of online demand going piled high during the lockdown period, retailers
forward and ensuring that any service will need to review their sourcing, stocking
expansion is profitable and sustainable. and inventory policies. How commercially
viable is near-sourcing, multiple suppliers, just
in time manufacturing and pull ordering? Many
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‘fast fashion’ retailers already operate these higher level of efficiency and service. This will
more agile, short lead time, responsive supply not just be end-to-end through the supply chain,
chain models ¬– how can mainstream retailers but also across the retail offer, giving an
implement similar principles, and do so integrated and detailed view of stock, sales,
profitably? Collaboration and visibility are likely orders, deliveries, and forecasts over all
to be key components. channels – enabling goods, people and
management resource to be reallocated quickly
All the points made so far have implications for to where they are most needed.
the size, type and location of warehousing and
distribution centres, and also for the sorts of It should go without saying that the key to
relationships retailers will need to have with success in all of this is continued investment in
their competitors, suppliers, and logistics people, at all levels. A supply chain is far more
partners. than its stock, warehouses, systems and
vehicles.
All this of course has to be done while
maintaining or improving efficiency and service
levels, and maintaining an iron control over IN THIS TOGETHER, FOREVER?
costs. This is particularly true online. As many
firms are currently discovering, an online offer On their own, retailers may struggle to adapt
can be expensive to deliver, particularly when their supply chains and distribution networks. It
speed is prioritised. The key to sustainability will is important therefore that some of the positive
be balancing customer proposition and cost, lessons from the crisis are not forgotten – in
and creating efficiency at scale. To achieve this particular, the benefits of collaboration.
retailers need to look inwards to understand There are many parts of the supply chain that
their own processes and costs, and outwards to do not really form the basis for competition
what their customers really want. between brands. As far a Competition Laws
allow, collaboration, through for example the
Those that succeed in the ‘new normal’ will shared use of vehicles, warehousing and other
have invested, not necessarily massively, but assets should be continued and refined. It may
wisely, in a number of areas. Automation turn out that in some areas, such as urban ‘last
gives opportunities to improve labour resilience, mile’ delivery, collaboration may even become
to grow more cost effectively, and to be able to a necessity.
react faster and more robustly to fluctuations,
whether those be spikes in demand or labour Finally, adversity brings new opportunities.
shortages. Importantly, automation is not just Retailers and their partners must learn to
needed in the warehouse – much sourcing, capitalise on some of the ‘quick fix’ and ‘Heath
procurement, supplier relations, transport and Robinson’ solutions that the crisis has
warehouse management, and the links between stimulated. Some improbable business models
them, are ripe for automation. Well-deployed have emerged and, while many of these are
technology would free people to focus on the likely to be unsustainable or unprofitable in
real value-adding decisions. normal times, some may have real merit, and
with creativity these could be developed to real
Digitisation at some level will be essential to advantage. Certainly, retail needs to continue
create transparency and visibility, giving actively seeking out innovative ideas for a
new normal that will certainly be dynamic,
retailers more control and a faster flow of
unpredictable, and full of opportunities.
decisions and processes. The result will be a
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IN CONCLUSION...
In this time of crisis, despite the huge
challenges that retailers face, there are
likely to be many silver linings that can
be turned into opportunities. It will be
those enlightened leadership teams that
use this time to plan, model and
implement new approaches to their
supply chain that will create and
maintain healthy businesses fit for a
post Coronavirus future.
If some of these topics have resonated
with you - whether it’s short term
efficiency, translating new customer
demands into reality, profitability
analysis, space or transport or fulfilment
solutions - our team of supply chain
experts can help you to talk through in
the context of your own business
challenges and together understand
how best to support your future
success.
Contact Louisa
louisa.hosegood@bis-henderson.com
or visit
www.bis-hendersonconsulting.com
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